If you're trying to stay afloat and avoid foreclosure on your home there's a new government program now available that could lower your mortgage payments. The Obama administration released rules at the end of March for a new home loan assistance program. It's called HAMP - the Home Affordable Modification Program. When about 7 million people in the United States are behind at least one payment on their loans, this program is structured to help people lower their mortgage payments temporarily or permanently.
The President introduced a similar home modification program a year ago, but that program was narrowly focused. Only about three percent of homeowners who needed one could get it and almost all of the changes in people's mortgages were temporary. SmartMoney Deputy Editor Matthew Heimer gives tips on how to take advantage of the new HAMP program.
The first step is to find out if you qualify. The new program basically aims to help people who fall into three categories: People who've lost income; People whose mortgages have gone up; and people who've seen the value of their home go down.
Next, know your "magic number." To learn more about whether you're eligible for assistance, there are two numbers you need to know. 1.) 31 percent: If your monthly payment (mortgage+insurance+taxes) is more than 31 percent of your total income, you can qualify for at least temporary relief. 2.) 115 percent: Ditto if the balance on your mortgage is now 115 percent or more of what the home is worth.
Now it's time to get your application together. There are two steps: 1.) Paperwork: you need to fill out a tax form and an application (available at makinghomeaffordable.gov) and pull together "proof of income." 2.) Contact your mortgage servicer. Remember, this may not be the bank that loaned you the money. It's the company you make your payments to.
Look out for obstacles that could disqualify you. The bank, or whoever owns your mortgage, isn't always legally required to cooperate with you though it is often in their best interest. Many mortgages have been bought by Fannie Mae and Freddie Mac. If you have one of those, the bank/servicer MUST help you. If your mortgage is really big, more than $729,750, you can't qualify. You also must live in the house. It can't be investment or rental property.
Last, if you find you don't qualify, consider a Plan B - a short sale or "deed in lieu of foreclosure." These are ways you can get your mortgage off your hands without going into foreclosure - which means your credit rating won't take such a big hit. This can be good for some people, because it lets them move into a more affordable place and start to get their financial lives back together. Under the new Obama plan, the federal government will pay you some money to help you relocate if you do this. A "short sale" is where you give the house to the bank without going through foreclosure.
Check out makinghomeaffordable.gov to learn more about HAMP or call 888-995-HOPE. And for more information on HAMP and other financial tips click here.
Matthew Heimer & Erika Wortham
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